Now the drought is pushing food inflation higher than overall
inflation.

The Consumer Price Index (CPI) in September was up 3.9% over the
previous year, while the increase for food alone was up 4.7%.
Over the past five years, world food costs have risen 68%.

Earlier in the year, grocery stores were eating most of the price
increases, somewhat insulating U.S. consumers. But in recent
months that's begun to change.

"The era of grocers holding the line on retail-food cost
increases is basically over," John Anderson, a senior economist
at the Farm Bureau in Washington, told Bloomberg
News.

The Biggest Bites

Prices are going up the most dramatically in the categories of
food most affected by the drought. Beef is up 10.1%, for
instance.

With pastures drying up over the summer, many ranchers were
forced to sell off cattle before they could reproduce. While that
briefly increased the supply of beef, the current shortage of
cattle - the U.S. herd was at a 38-year low this summer - is
impacting prices.

The drought has caused the price of hay to skyrocket from $80 a
ton to $200 a ton, which, because it's used as forage for farm
animals, has contributed to a 10.2% spike in dairy prices.

But perhaps the hardest hit crop has been peanuts. The U.S.
Department of Agriculture has projected a 13% drop in peanuts for
2011, which has caused the price for a ton of runner peanuts
(used in peanut butter) to surge from $450 to $1,200 in the past
year.

That has led to massive price hikes among the major peanut butter
makers. Kraft Foods
Inc. (NYSE: KFT) raised the price for its Planters brand of
peanut butter by 40% earlier this month, The J.M. Smucker Company
(NYSE: SJM) raised the price of Jif by 30%, and ConAgra
Foods Inc. (NYSE: CAG) raised the price of Peter Pan by 20%.

La Niña Returns

The La Niña weather pattern responsible for this year's drought
has reformed this fall. La Niña is the name meteorologists have
given to an unusually cool Pacific Ocean that in turn causes dry
conditions over much of the Southwestern United States.

"This means drought is likely to continue in the drought-stricken
states of Texas, Oklahoma and New Mexico," said Mike Halpert,
deputy director of the National Oceanic and Atmospheric
Administration's Climate Prediction Center. "The odds do not
favor the south getting out of drought, at least before next
spring or summer, and even that could be a reach."

In Texas, which has by far borne the worst of the drought,
government weather officials fear that the dry conditions could
persist for a decade or longer.

That's especially bad news for the cattle industry, as it takes
three years to raise cattle to slaughtering size, and the herds
were already severely reduced over the past summer. A years-long
drought will further delay recovery and drive steep increases in
beef prices.

The only good news is that experts don't foresee any food
shortages, just food inflation.

"The food will be available; you're just going to pay a higher
price," Purdue's Alexander said.